a beneficiary options as a result of the secure act - ds

Beneficiary Options As a Result of the SECURE Act

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Learning Objectives

• Explain the beneficiary options when an account owner dies in 2020 or later, but before his RBD

• Describe the beneficiary options when an account owner dies in 2020 or later, but on or after her RBD

• Understand the successor beneficiary options when a beneficiary dies in 2020 or later

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Definitions

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Eligible Designated Beneficiary

Designated beneficiary

Definitions

Named beneficiary

Determination date30

Definitions

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Definitions

Named beneficiaryA beneficiary who is named to

inherit all or a portion of an IRA or retirement plan as of the date of

the account owner’s date of death

Determination dateSeptember 30 of the year following the year of the account owner’s death

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DefinitionsAn individual named primary beneficiary who is still alive as of the account owner’s date of death and has a balance remaining in the account as of the determination date

With multiple designated beneficiaries, the oldest designated beneficiary’s life expectancy as of the determination date is used, if available, unless separate accounting applies

The designated beneficiary’s life expectancy is used to calculate life expectancy payments, if eligible

Designated Beneficiary

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Eligible Designated Beneficiary

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Definitions

Spouse Account owner’s minor child

Disabled (IRC §72(m)(7))

Chronically ill (generally within the meaning of

IRC §7702B(c)(2))

Not more than 10 years younger than the account

owner

Beneficiary Distribution Options Summary

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Types of Beneficiaries

Nonperson beneficiary

Eligible designated beneficiary

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Not an eligible designated beneficiary

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Beneficiary Options for Deaths Occurring On or After January 1, 2020Eligible Designated Beneficiary

Spouse Beneficiary

• Lump sum• 10-year rule• Life expectancy payments• Transfer to own IRA.• Distribute and roll over to own IRA or eligible plan.

Nonspouse Beneficiary

• Lump sum• 10-year rule• Life expectancy payments

NOTE: Minor children may take life expectancy payments, but must switch to the 10-year rule once they reach the age of majority

Not an Eligible Designated Beneficiary

• Lump sum• 10-year rule

Nonperson Beneficiary (e.g., estates, entities, certain trusts)

Roth IRA Owner

Traditional IRA Owner Died Before RBD

Traditional IRA Owner Died On or After RBD

• Lump sum• 5-year rule

• Lump sum• Life expectancy payments

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Transfer or Distribution and Rollover, Direct Rollover, and Indirect Rollover

Transfer or Direct Rollover

Roth IRA

Traditional IRA

Employer-Sponsored

Retirement Plan

Roth IRA

Traditional IRA

Employer-Sponsored

Retirement Plan

Rollover or Indirect Rollover11

5-Year Rule

12/31/2026

Balance = 0

2022 2023 2024 2025 20262021

Death of Account Owner

X

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10-Year Rule

2021 2022 2023 2024 2025 2026

X

Death of Account Owner

2027 2028 2029 2030 2031

12/31/2031

Balance = 0

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Lump Sum

Available to all beneficiaries

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Life Expectancy Payments

Use Single Life Expectancy Table

Account balanceDistribution period = Life expectancy

payment

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Recalculation vs NonrecalculationRecalculation

Nonrecalculation

First year Following years

Spouse only

First year

Any beneficiary

Following years

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Life Expectancy PaymentsSpouse Eligible Designated Beneficiary

Traditional and Roth IRA and Retirement Plan Death Before the RBD

• Life expectancy payments must begin by 12/31 of the year following the year of the account owner’s death or 12/31 of the year the account owner would have attained age 72.

• The life expectancy used in the first distribution year and for subsequent year’s payments is determined using the spouse beneficiary’s single life expectancy, recalculated.

Traditional IRA and Retirement Plan Death On or After the RBD

• Life expectancy payments must begin by 12/31 of the year following the year of the account owner’s death.

• The life expectancy used in the first distribution year is the longer of the spouse beneficiary’s single life expectancy in the year following the account owner’s death or the account owner’s single life expectancy in the year of death, reduced by one.

• Subsequent years’ payments are determined by comparing the two life expectancies—using nonrecalculation for the decedent and recalculation for the spouse beneficiary.

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Life Expectancy PaymentsNonspouse Eligible Designated Beneficiary



• The life expectancy used in the first distribution year is the single life expectancy of each designated beneficiary (or oldest designated beneficiary if separate accounting does not apply) in the year following the year of the account owner’s death.

• Subsequent years’ payments are determined using nonrecalculation.



• The life expectancy used in the first distribution year is the longer of 1) each designated beneficiary’s single life expectancy (or the oldest designated beneficiary if separate accounting does not apply) in the year following the year of the account owner’s death or 2) the account owner’s single life expectancy in the year of death, reduced by one.


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Life Expectancy PaymentsNot an Eligible Designated Beneficiary


• Life expectancy payments are not available.



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Life Expectancy PaymentsNonperson Beneficiary (e.g., estates, entities, certain trusts)





• The life expectancy used in the first distribution year is the single life expectancy of the account owner in the year of the account owner’s death, reduced by one.


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Successor Beneficiary Distribution Options Summary

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Successor Beneficiary Distribution Options Summary

Account Owner’s Year of Death

Primary Beneficiary’s Year of Death Successor Beneficiary’s Payout

2019 or earlier 2020 or laterMust distribute the entire interest by the end of

the 10th calendar year after the original beneficiary’s death

2020 or later 2020 or later; Eligible designated beneficiary

Must distribute the entire interest by the end of the 10th calendar year after the original

beneficiary’s death

2020 or later2020 or later;

Not an eligible designated beneficiary

Is subject to the original beneficiary’s 10-year rule*

*The statute is not clear on whether a successor beneficiary continues with the 10-year rule; however, this would align with current rules.

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1. Max Schwartz died on September 9, 2021, at the age of 75. The primary beneficiaries of his retirement plan are his wife, Claudia, born April 3, 1947, receiving 75 percent; and his son, Martin, born June 18, 1972, receiving 25 percent.

Beneficiary Options for Death On or After January 1, 2020

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What are Claudia’s options?

10-year rule

Transfer to own IRA

Distribute and roll over to own IRA or eligible plan

Lump sum

Life expectancy payments


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What are Martin’s options?

10-year rule

Lump sum

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2. Macy Knutson died on June 18, 2021, at the age of 93. The primary beneficiaries of her Roth IRA are her husband, Carl, born November 16, 1926, receiving 80 percent; her daughter, Gillian, born May 12, 1951, receiving 15 percent; and her favorite charity, receiving 5 percent.

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What are Carl’s options?

10-year rule

Transfer to own IRA


Lump sum


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What are Gillian’s options?

10-year rule

Lump sum

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What are the charity’s options?

Lump sum

Five-year rule

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3. Jack Hanson died on May 15, 2021, at the age of 33. His primary beneficiaries of his Traditional IRA are his wife, Sara, born June 22, 1988, receiving 70 percent; his daughter, Emma, born October 17, 2012, receiving 20 percent; and his favorite charity, receiving 10 percent.

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What are Sara’s options?

10-year rule

Transfer to own IRA


Lump sum


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What are Emma’s options?

10-year rule

Lump sum


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What are the charity’s options?

5-year rule

Lump sum

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Questions?

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